Since this is about economics, the answer has to be “Yes and No”, and in fact it is.
I won’t rehash his points; if you haven’t already read his essay you should right now. But here’s what I think:
Krugman Gets it Right
Economists are much too enamored of elegance in their models. The shortest path to elegance turns out to be a pernicious set of assumptions—that the economy can be represented entirely as a nexus of instantaneous exchanges, that the people and organizations who make these exchanges have a single goal that they maximize with unfailing precision, that all decisions are made in perfect isolation from one another and are not subject to social dynamics, and that all functions (production, utility) in the economy are as well-behaved as North Korean schoolchildren at a patriotic pageant. Drop those assumptions and the math gets messy—and probably unpublishable.
There are authoritarian dynamics within the economics profession itself. The nice concept of rival theories competing with evidence and arguments doesn’t apply; debates are settled with coercion and ridicule.
Somehow finance disappeared from macroeconomics. The instability of financial institutions and other credit intermediaries was shunted off the table and out of sight. You can read macro textbooks from the principles level on up to grad school and see nary a mention of balance sheets in any context other than money multipliers. This takes its most extreme form in Miller-Modigliani (firms) and Ricardian Equivalence (government): debt or equity, borrow or tax, it’s all the same. And it is all the same if balance sheets don’t matter.
Krugman Gets it Wrong
The zero lower bound for interest rates in a financial crisis is a red herring. Real interest rates can easily go negative, and have repeatedly, if inflation can be stoked by monetary authorities. The deeper problem has to do with default risk, as Stiglitz showed in his Nobel-worthy work on credit markets. In fact, bringing default back into economic modeling is the point behind reintroducing balance sheet analysis.
At a general level, however, I think Krugman missed the key piece of the story: economics does not respect the most important criterion that separates science from non-science, the drive to minimize Type I error (false positives). Neither in modeling nor in econometrics do economists ever ask, what would constitute a critical test of my hypothesis—a result that would hold only if my hypothesis were true? Instead, a much lower standard is commonplace: what result would be consistent with my hypothesis? This loose standard has allowed absurd, readily falsifiable propositions to dominate economic thinking and classroom instruction for decades. Worse, being caught in a Type I error has no apparent career consequences for economists. Can you think of a “cold fusion” episode in economics that ended with researchers being disgraced and humiliated?
Not even a global financial crisis can have this effect.